Budget debate: S'pore must maintain fair and progressive system of taxes and benefits, says Lawrence Wong

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SINGAPORE - Even as it seeks to raise revenues to meet growing spending needs, Singapore must insist on "keeping faith" with both current and future generations through a fiscal structure that is fair, inclusive and progressive, Finance Minister Lawrence Wong said.

This entails a good mix of income, asset and consumption-based taxes - which is why the goods and services tax (GST) cannot be ignored, Mr Wong said in rounding up the debate on Budget 2022 on Wednesday (March 2).

"We have designed our system on the principle of collective responsibility," he told Parliament in underlining why Singapore needs to raise the broad-based consumption levy from 7 per cent to 9 per cent.

"Those who have greater means bear a higher burden, and they draw less on government support… Those with fewer means carry a lighter share, but they still contribute something and, in return, they receive more benefits from the Government," he said.

"In this way, we all do our part to help ourselves and one another, and we strengthen the trust that binds us together as a society," he added in a 1½-hour speech wrapping up three days of debate during which 64 MPs spoke.

The House on Wednesday endorsed this year's $109 billion Budget, including plans to raise the GST rate in two stages - by 1 percentage point on Jan 1, 2023, and by a further 1 percentage point on Jan 1, 2024.

Opposition members objected to these plans. Leader of the Opposition and Workers' Party (WP) chief Pritam Singh recorded his party's dissent, saying "no offset package lasts forever" in reference to a $6.6 billion raft of measures to help cushion the blow of the GST hike.

In their speeches earlier in the week, WP MPs and the Progress Singapore Party's (PSP) Non-Constituency MPs Hazel Poa and Leong Mun Wai had cited disagreement with the GST increase as their primary reason for objecting to the Budget.

On Wednesday, Mr Wong began his response by noting that the Russian invasion of Ukraine would have an impact on the global economy. The Government is monitoring the risk - in growth and inflation - to Singapore's economy, he said.

"If the situation worsens, we will not hesitate to take further actions to protect jobs and to help households and businesses deal with increased costs," Mr Wong said.

He then acknowledged MPs' earlier questions and suggestions on labour policies and the green economy, among other issues, though much of his speech was focused on taxes.

"In many countries, the tendency is for politicians to focus only on the spending side, because it is inconvenient to talk about taxes," said Mr Wong. "As a result, these governments spend beyond their means, they run up unfunded obligations and debt, and they kick the fiscal can down the road. We are not immune to such pressures."

He reiterated that an increase in healthcare and social spending would be necessary and unavoidable, given Singapore's rapidly ageing population. To fund these pressing revenue needs, the GST increase cannot be pushed back any further.

While addressing alternative revenue options raised by MPs, he slammed the WP and PSP for their "simplistic and divisive" proposals to make other groups - such as the wealthy, large companies, and future generations - pay more tax in lieu of raising the GST.

Singapore cannot sustain a system where the bulk of the tax burden is borne by a small group at the end, Mr Wong stressed.

He also said the opposition MPs' criticisms of the GST offsets being temporary and the tax hike disproportionately affecting the poor were "misguided claims", given the schemes to ensure the effective rate for the lower-income remains unchanged.

Mr Wong also promised that the Government would continually review and update its system of taxes and transfers, to mitigate the pressures of social inequalities.

Mr Singh later rose to point out that since the GST hike was first announced in 2018, global events like the pandemic have since pushed inflation to its highest in years. "Is this a reasonable thing to do in these circumstances?" he asked of the tax hike.

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Acknowledging that it was a very difficult decision to make in view of concerns over rising prices, Mr Wong said this was why the GST hike was delayed and staggered over two steps.

"If indeed inflation turns out to be more persistent and higher than expected, which may happen, we will deal with that decisively," he said.

Later, in response to questions from WP MP Leon Perera (Aljunied GRC) on rules and the optimal level for the reserves, Mr Wong said he could not understand why the party was willing to touch the reserves, but reject the option of a GST increase.

"I can only therefore ask whether you are taking things too lightly, or whether you are raising this in opposition because of… political reasons, or other things, as opposed to seriously looking at the facts and doing what's right for Singapore," he said.

A move like a GST increase is not the popular thing for him to do, Mr Wong said in his speech. "Certainly not for my first Budget as Finance Minister. But I have a responsibility to do what's right, and what's in the best interest of all Singaporeans. Not what's politically expedient now," he said.

"I have confidence that Singaporeans can instinctively sense if any Budget is not worthy of them and fails to renew their trust in the Government, in each other, and in the future," Mr Wong concluded.

"They can decipher whether the Budget reflects our shared vision of a fair and just society, whether this Government is one they can trust to manage our resources in a way that is in line with our values, and whether this Government is keeping faith with them and their children."

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